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Determinants of Capital Structure Choice:
A Structural Equation Modeling Approach
Cheng F. Lee
Distinguished Professor of Finance
Rutgers, The State University of New Jersey
Editor of Review of Quantitative Finance andAccounting and Review of Pacific Basin Financial
Markets and Policies
The 15th Annual Conference on PBFEAM at HoChi Minh City, Vietnam
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OUTLINEI. IntroductionII. Measures and Determinants of
Capital Structure
III. Sample
IV. Methodology
V. Empirical Results
IV. Conclusion
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I. IntroductionA. History of Finance
B. Theoretical Framework of Finance
a. Classical Theory
b. New classical theory
c. CAPM and APT
d. Options and Futures Theory
C. Policy Framework of Financea. Investment Policy b. Financial Policy
c. Dividend Policy d. Production Policy
D. Accounting Approach to Determine Capital
Structurea. Static Ratio Analysis
b. Dynamic Ratio Analysis
E. Finance Approach to Determine Capital Structure
a. Traditional Approach
b. Option Approach
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II. Measures and Determinants
of Capital Structure
A. Growth
B. Uniqueness
C. Non-Debt Tax ShieldsD. Collateral Value of Assets
E. ProfitabilityF. Volatility
G. Industry Classification
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III. Sample
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Variable N Minimum Lower Quartile Mean Median Upper Quartile Std Dev Maximum
LT/MVE 13,887 0.00 0.00 0.44 0.08 0.35 1.94 84.99ST/MVE 13,887 0.00 0.00 0.19 0.02 0.08 1.38 69.18
C/MVE 13,887 0.00 0.00 0.05 0.00 0.00 0.40 33.61
RD/S 13,887 0.00 0.00 0.16 0.02 0.08 1.38 54.79
CE/TA 13,887 0.00 0.02 0.06 0.04 0.07 0.06 1.32
GTA 13,887 -0.94 -0.04 0.15 0.06 0.19 0.71 32.45
MBA 13,887 0.08 1.03 1.92 1.37 2.10 1.97 43.19
MBE 13,887 0.01 1.07 3.03 1.81 3.19 5.02 98.68
RD/TA 13,887 0.00 0.00 0.06 0.02 0.08 0.10 3.69
NDT/TA 13,887 0.00 0.04 0.41 0.06 0.13 2.02 70.13ITC/TA 13,887 0.00 0.00 0.00 0.00 0.00 0.06 6.40
DEP/TA 13,887 0.00 0.03 0.05 0.04 0.06 0.04 1.61
IGP/TA 13,887 0.00 0.25 0.43 0.44 0.60 0.24 1.00
OI/TA 13,887 -4.21 0.02 0.04 0.08 0.14 0.22 1.40
OI/S 13,887 -81.64 0.01 -0.18 0.07 0.12 2.55 9.12
STDGOI 13,887 0.00 0.20 2.07 0.52 1.53 6.18 93.21
CV(ROA) 13,887 0.00 0.19 1.73 0.49 1.29 5.46 98.05
CV(ROE) 13,887 0.00 0.19 1.72 0.51 1.42 5.07 97.28
CV(OITA) 13,887 0.00 0.14 1.19 0.32 0.79 4.19 92.43IND 13,887 0.00 0.00 0.01 0.00 0.00 0.11 1.00
Table 1
Descriptive Statistics for the Pooled Sample during 1988-2003
RD/S is the ratio of R&D to sales. CE/TA is the ratio of capital expenditure to total assets. GTA is the
percentage change in total assets. MBA is the ratio of market-to-book assets. MBE is the ratio of market-to-
book equity. RD/TA is the ratio of R&D to total assets. RD/S is the ratio of R&D to sales.NDT/TA is the
ratio of non-debt tax shields to total assets. ITC/TA is the ratio of investment tax credit to total assets.
DEP/TA is the ratio of depreciation to total assets. IGP/TA is the ratio of the sum of inventory and grossplant and equipment to total assets. OI/TA is the ratio of operating income to total assets. OI/S is the ratio
of operating income to sales. STDGOI is the standard deviation of the percentage change in operating
income. CV(ROA) is the coefficient of variation of ROA. CV(ROE) is the coefficient of variation of ROE.
CV(OITA) is the coefficient of variation of operating income divided by total assets. IND is the
Table 1
Descriptive
Statistics for thePooled Sample
during
1988-2003
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Table 2 Pearson Correlation Coefficients for the Pooled Sample
during 1988-2003, N = 13,387
LT/MVE ST/MVE C/MVE RD/S CE/TA GTA MBA MBE RD/TA NDT/TA ITC/TA DEP/TA IGP/TA OI/TA OI/S CV(ROA) CV(ROE) CV(OITA) STDGOI
LT/MVE 1 0.158 0.160 -0.020 -0.033 -0.028 -0.099 -0.066 -0.091 -0.022 -0.004 -0.026 0.036 -0.002 0.022 -0.002 0.038 0.034 -0.005
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Table 3
Constructs and
Indicators in
Titman andWessels (1988)
Model
Table 3
Constructs and Indicators in Titman and Wessels (1988) Model
Six measures used to indicate capital structure in Titman and Wessels (1988)are long-term, short-term, and convertible debt divided by market and bookvalues of equity and denoted as LT/MVE, ST/MVE, C/MVE, LT/BVE, ST/BVE, andC/BVE, respectively. The determinants of capital structure include growth,uniqueness, non-debt tax shield, collateral value, size, profitability,volatility, and industry.______________________________________________________________________________Constructs Indicators Definition of Indicators
______________________________________________________________________________________________
(A). Capital Structure (Effects)LT/MVE Long-Term Debt / Market Value of Equity
ST/MVE Short-Term Debt / Market Value of Equity
C/MVE Convertible Debt / Market Value of Equity
LT/BVE Long-Term Debt / Book Value of EquityST/BVE Short-Term Debt / Book Value of Equity
C/BVE Convertible Debt / Book Value of Equity
(B). Determinants of Capital Structure (Causes)
Growth RD/S Research & Development / SalesCE/TA Capital Expenditure / Total Assets
GTA Percentage Change of Total Assets
Uniqueness RD/S Research & Development / SalesQR Quit Rates
SE/S Selling Expenses / SalesNon-Debt Tax
Shields NDT/TA Non-Debt Tax Shields / Total AssetsITC/TA Investment Tax Credit / Total Assets
D/TA Depreciation / Total Assets
Collateral Value INT/TA Intangible Assets / Total Assets
IGP/TA (Inventory + Gross Plant and Equipment) / Total Assets
Size LnS ln(Sales)
QR Quit Rates
Profitability OI/TA Operating Income / Total AssetsOI/S Operating Income / Sales
Volatility SIGOI Standard Deviation of the Percentage Changein Operating Income
Industry IDUM Industrial Classification Dummy Variables
______________________________________________________________________________________________
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Figure 1.
Path Diagram of a Simplified MIMIC
Figure 1. Path Diagram of a Simplified MIMIC
X1
X3
X2
y3
y2
y1 1
2
3
A. MIMIC Model
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(1) = +
Y = y
(2) X = x,
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Let =0, X, x=I, and =0,
the full structural equation model
becomes a MIMIC model
= X +
Y = y,where
is a (m x 1) vector of endogenous variables with zeros on the
diagonal;
is a (n x 1) vector of exogenous variables;
is a (m x 1) vector of errors in equation.
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The latent variable is linearly determined by a
set of observable exogenous causes, X = (X1,
X2, , Xq), and a disturbance .
In matrix form
= X +
or in equation form
= X + = 1 X1 + 2 X2 + +q Xq + .
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The latent variable, in turn, linearly determines
a set of observable endogenous indicators, Y =
(Y1, Y2, , Yp) and a corresponding set ofdisturbance, = (1, 2, , p).
In matrix form Y = y.
In equation form
Y1
= 1
+ 1
Y2 = 2 + 2
Yp = p + p.
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The disturbances are mutually independent due to the
fact that correlations of Ys are already accounted for
by their common factor or so-called latent variable, .For convenience, all variables are taken to have
expectation zero. That is, the mean value of each
variable is subtracted from each variable value. Thus,
E() = 0, E(2) = , E() = ,
where
is a (p x p) diagonal matrix with the vector ofvariances of the s, , displayed on the diagonal.
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The equations can be combined to yield a reduced
form
Y = y = y (X + ) +
= (y
) X + y
+ = X + (y
+ )
= X + z,
where = y is the reduced form coefficient matrix;
z = y + is the reduced form disturbance vector.
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The disturbance vector has covariance matrix
Cov(z) = = E(zz) = E[(y + )(y + )]
= yy +
Where
= Var() and is diagonal covariance matrix of.
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B. Estimation Criterion
F = log |||| + tr(S-1)log||S|| - (p + q),
Where is the population covariance matrix;
S is the model-implied covariance matrix;
p is the number of exogenous observable variables;
q is the number of endogenous observable variables.
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V. Empirical Result
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Table 4Constructs,
Causes and
Effects in MIMIC
Model
Table 4
Constructs, Causes and Effects in MIMIC Model
In MIMIC model, long-term (LT/MVE), short-term (ST/MVE), and convertible (C/MVE) debt divided
y market value of equity are indicators of the latent construct -- capital structure. The determinants of
capital structure include ratio of R&D to sales (RD/S), the ratio of capital expenditure to total assets(CE/TA), the percentage change in total assets (GTA), the ratio of market-to-book assets (MBA), the
atio of market-to-book equity (MBE), the ratio of R&D to total assets (RD/TA), the ratio of R&D to
sales (RD/S), the ratio of non-debt tax shields to total assets (NDT/TA), the ratio of investment taxcredit to total assets (ITC/TA), the ratio of depreciation to total assets (DEP/TA), the ratio of the sum
of inventory and gross plant and equipment to total assets (IGP/TA), the ratio of operating income to
otal assets (OI/TA), the ratio of operating income to sales (OI/S), the standard deviation of theercentage change in operating income (STDGOI), the coefficient of variation of ROA (CV(ROA)),
he coefficient of variation of ROE (CV(ROE)), the coefficient of variation of operating income
divided by total assets (CV(OITA)), and the dichotomous industry classification (IND). In the model,
irm characteristics include growth, uniqueness, non-debt tax shields, collateral value, profitability, andolatility, and they are modeled as implicit constructs that are not shown in the model but only
implicitly represented by cause variables.
__________________________________________________________________________________
Constructs Causes/Effects Definition of Indicators__________________________________________________________________________________
A. Capital Structure (Effects)LT/MVE Long-Term Debt / Market Value of Equtity
ST/MVE Short-Term Debt / Market Value of Equity
C/MVE Convertible Debt / Market Value of Equity
B. Implicit Construct (Causes)*
Growth RD/S Research & Development / SalesCE/TA Capital Expenditure / Total Assets
GTA Percentage Change in Total Assets
MBA Market-to-Book Assets
MBE Market-to-Book EquityRD/TA R&D-to-Assets Ratio
Uniqueness RD/S Research & Development / Sales
Non-Debt Tax
Shields NDT/TA Non-Debt Tax Shields / Total AssetsITC/TA Investment Tax Credit / Total AssetsDEP/TA Depreciation / Total Assets
Collateral Value IGP/TA (Inventory + Gross Plant and Equipment) / Total Assets
Profitability OI/TA Operating Income / Total Assets
OI/S Operating Income / Sales
Volatility STDGOI Standard Deviation of the Percentage Change
in Operating Income
CV(ROA) Coefficient of Variation of ROA
CV(ROE) Coefficient of Variation of ROECV(OITA) Coefficient of Variation of OI Divided by Total Assets
Industry IND Two-Category Dummy Variable
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Table 5
Goodness-of-FitMeasures
Year RMSEA SRMR NNFI CFI IFI
1988 0.02 0.04 0.99 0.99 0.99
1989 0.00 0.03 1.00 1.00 1.00
1990 0.00 0.03 1.00 1.00 1.00
1991 0.00 0.03 1.00 1.00 1.00
1992 0.00 0.03 1.00 1.00 1.00
1993 0.00 0.03 1.01 1.00 1.01
1994 0.00 0.03 1.01 1.00 1.01
1995 0.01 0.03 0.99 1.00 1.00
1996 0.00 0.03 1.00 1.00 1.00
1997 0.02 0.04 0.99 0.99 0.99
1998 0.01 0.04 1.00 1.00 1.00
1999 0.01 0.03 1.00 1.00 1.00
2000 0.02 0.04 1.00 1.00 1.00
2001 0.02 0.04 0.99 0.99 0.99
2002 0.01 0.03 1.00 1.00 1.00
2003 0.00 0.03 1.00 1.00 1.00
1988-2003 0.03 0.04 0.99 0.99 0.99
(A) Absolute Fit Indices (B) Incremental Fit Indices
Table 5
Goodness-of-Fit Measures
Two types of goodness-of-fit indices, absolute fit indices and incremental fit indices, are presented in this table.The former includes RMSEA and SRMR while the latter includesNNFI, CFI, and IFI. RMSEA is recommended by
Browne and Cudeck (1993),Hu and Be
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Table 6
Completely
Standardized
Loadings
1988 1989 1990 1991 1992 1993 1994
Panel A: Indicators of Leverage
LT/MVE 0.97 0.94 0.83 0.86 0.88 0.80 0.90
ST/MVE 0.52 0.58 0.64 0.68 0.63 0.71 0.64
C/MVE 0.37 0.33 0.36 0.36 0.36 0.34 0.39
Panel B: Determinants of Leverage
RD/S -0.17 -0.21 -0.12 0.02 -0.02 0.05 0.03
CE/TA 0.04 -0.03 -0.13 -0.10 -0.18 -0.08 -0.19
GTA 0.12 0.09 0.07 -0.04 0.08 0.11 0.18
MBA -0.76 -0.59 0.38 -0.14 -0.46 -1.01 -0.70
MBE 0.50 0.34 -0.56 -0.12 0.21 0.65 0.46
RD/TA -0.09 -0.01 -0.05 -0.14 -0.10 -0.14 -0.21
NDT/TA 0.11 0.19 0.17 0.07 0.05 0.03 0.08
ITC/TA 0.03 -0.03 -0.09 -0.06 -0.08 -0.05 0.00
DEP/TA -0.07 -0.09 -0.04 0.08 0.09 0.04 0.14
IGP/TA 0.14 0.22 0.25 0.32 0.36 0.31 0.26
OI/TA -0.31 -0.41 -0.41 -0.22 -0.17 -0.07 -0.11
OI/S 0.18 0.31 0.28 0.13 0.16 0.06 0.05
STDGOI 0.00 0.04 -0.01 0.01 -0.08 -0.14 -0.18
CV(ROA) 0.24 0.09 0.38 0.38 0.15 0.15 0.18
CV(ROE) -0.02 0.08 -0.05 -0.01 0.20 0.09 0.19
CV(OITA) -0.27 -0.24 -0.29 -0.39 -0.26 -0.07 -0.18
IND -0.06 0.09 0.05 0.06 0.02 0.04 0.02
A completely standardized solution is computed by standardizing both observed and latent constructs
before performing parameters estimation.
LEVERAGE
Table 6
Completely Standardized Loadings
T bl 6 ( td)
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1995 1996 1997 1998 1999 2000 2001 2002 2003'88-2003
Panel A: Indicators of Leverage
LT/MVE 0.91 0.85 0.84 0.87 0.84 0.83 0.9 0.96 0.87 0.87
ST/MVE 0.62 0.66 0.62 0.59 0.64 0.64 0.58 0.57 0.64 0.64
C/MVE 0.34 0.31 0.27 0.27 0.23 0.29 0.26 0.33 0.29 0.31
Panel B: Determinants of Leverage
RD/S -0.13 0 .15 0.15 -0.01 -0.18 -0.03 0.17 -0 .01 0.16 -0.07
CE/TA-0.17 -0.14 -0.02 -0.1 -0.08 -0.03 -0.05 0.04 -0.08 -0.05
GTA 0.16 0.12 0.15 0.21 0.15 0.01 0.08 -0.03 0.13 0.1
MBA -0.34 -0.7 -1.13 -0.97 -0.79 -0.33 -0.76 -0 .42 -1.2 -0.7
MBE 0.2 0.45 0.83 0.67 0.41 0.11 0.53 0.24 0.83 0.4
RD/TA -0.09 -0.37 -0.27 -0.19 -0.02 -0.29 -0.43 -0.25 -0.31 -0.12
NDT/TA 0.02 0.09 0.1 0.08 0.12 0.04 0.07 0.13 0.23 0.08
ITC/TA -0.05 -0.03 -0.04 -0.07 -0.02 -0.07 -0.01 0.01 -0.01 -0.02
DEP/TA 0.12 0.08 - 0.01 0.07 0.01 0.01 0.09 -0.04 0.05 0.04IGP/TA 0.36 0.33 0.33 0.25 0.23 0.19 0.15 0.21 0.23 0.28
OI/TA -0.2 -0.23 -0.3 -0.44 -0.4 -0.45 -0.39 -0.35 -0.32 -0.31
OI/S 0.12 0.25 0 .31 0.4 0.36 0.36 0 .39 0 .44 0.48 0.3
STDGOI -0.02 -0.09 -0.06 -0.09 -0.13 -0.1 -0.1 -0.08 -0.08 -0.06
CV(ROA) 0.1 0.29 0.12 0.17 0.25 0.15 0.1 0.22 0.25 0.22
CV(ROE) 0.22 -0.04 0.03 0.05 -0.02 0.12 0.17 -0.01 -0.1 0.03
CV(OITA) -0.21 -0.12 -0.1 -0.14 -0.17 -0.19 -0.22 -0.14 -0.19 -0.2
IND - 0.17 0.01 0.11 0.02 0.07 - 0.03 -0.08 0.05 0.13 0.05
LEVERAGE
before performing parameters est imation.
A completely standardized solution is computed by standardizing both observed and latent constructs
Table 6 (contd)
Completely Standardized Loadings
Table 6
(Contd)
Completely
Standardized
Loadings
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Table 7 Significance of Unstandardized Total Effect of Determinants of
Capital Structure
Frequency of
paremeters
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1988-2003 significant at =.05
RD/S * * * *** 0
CE/TA *** ** *** *** *** *** *** ** * *** 8
GTA *** ** * *** *** *** *** *** *** *** ** *** *** 11
MBA *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 15
MBE *** *** *** ** *** *** *** *** *** *** *** *** ** *** *** 14RD/TA *** *** *** * *** *** ** *** *** 8
NDT/TA ** *** *** ** * *** ** *** * *** *** *** 9
ITC/TA ** ** * *** ** ** 4
DEP/TA ** ** * ** *** 3
IGP/TA *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 16
OI/TA *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 14
OI/S *** *** *** ** *** ** *** *** *** *** *** *** *** *** *** 14
STDGOI *** *** * ** *** ** *** * ** *** 7
CV(ROA) *** *** *** *** * *** *** ** *** *** *** 10
CV(ROE) ** *** * *** 3
CV(OITA) *** *** *** *** *** *** *** * ** *** *** *** *** *** *** *** 15
IND ** * *** *** ** ** *** *** 6
Table 7
Significance of Unstandardized Total Effect of Determinants of Capital Structure
*Significant at .10 level; **significant at .05 level; ***significant at .01 level.
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Table 8 Signs of Total Effect of Determinants of Capital Structure
1988-
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - + Mode 2003
RD/S - - - + - + + - + + - - - + - + 9 7 - -
CE/TA + - - - - - - - - - - - - - + - 14 2 - -
GTA + + + - + + + + + + + + + + - + 2 14 + +
MBA - - + - - - - - - - - - - - - - 15 1 - -
MBE + + - - + + + + + + + + + + + + 2 14 + +
RD/TA - - - - - - - - - - - - - - - - 16 0 - -
NDT/TA + + + + + + + + + + + + + + + + 0 16 + +
ITC/TA + - - - - - + - - - - - - - + - 13 3 - -
DEP/TA - - - + + + + + + - + + + + - + 5 11 + +
IGP/TA + + + + + + + + + + + + + + + + 0 16 + +
OI/TA - - - - - - - - - - - - - - - - 16 0 - -
OI/S + + + + + + + + + + + + + + + + 0 16 + +
STDGOI + + - + - - - - - - - - - - - - 13 3 - -
CV(ROA) + + + + + + + + + + + + + + + + 0 16 + +
CV(ROE) - + - - + + + + - + + - + + - - 7 9 + +
CV(OITA) - - - - - - - - - - - - - - - - 16 0 - -
IND - + + + + + + - + + + + - - + + 4 12 + +
Table 8
Signs of Total Effect of Determinants of Capital Structure
Frequency
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Figure 2
Relative Impact of Determinants of Capital Structure
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
MBA M
BE
OI_TA
OI_S
IGP_TA
CV_ROA
CV_OIT
A
RD_TA
GTA
NDT_TA
RD_S
STDG
OI
CE_TA
IND
DEP_TA
CV_ROE
ITC_TA
Determinants of Capital S tructure
RelativeIm
pac
Pooled 1988 -2003
Cross-Sectional Average
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Table 9
Squared Multiple
Correlations
Sample Year(s) Leverage
LT/MVE ST/MVE C/MVE
1988 0.33 0.94 0.27 0.14
1989 0.36 0.87 0.34 0.11
1990 0.38 0.69 0.41 0.13
1991 0.43 0.74 0.46 0.13
1992 0.37 0.78 0.40 0.13
1993 0.48 0.64 0.51 0.11
1994 0.41 0.81 0.41 0.15
1995 0.37 0.83 0.39 0.11
1996 0.53 0.73 0.43 0.10
1997 0.61 0.71 0.38 0.07
1998 0.49 0.75 0.35 0.071999 0.48 0.71 0.41 0.05
2000 0.40 0.70 0.41 0.08
2001 0.37 0.81 0.34 0.07
2002 0.26 0.93 0.32 0.11
2003 0.58 0.75 0.41 0.08
1988-2003 0.40 0.76 0.41 0.10
Table 9
Squared Multiple Correlations
Indicators of Leverage
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Table 10
Comparison
of the
EmpiricalResults
Table 10
Comparison of the Empirical Results
The asterisks indicate the empirical results which are consistent with finance theory. This study employsMIMIC model to investigate the determinants of capital structure and obtains the results more consistentwith finance theory than Titman and Wessels (1988). This study excludes size attribute based on goodness-
of-fit model selection criteria. Except for industry construct, the other 6 determinants of capital structureare all significant in our model_____________________________________________________________________________________
Growth Unique- Non-Debt Collateral Size Profitability Volatility INDNess Tax Shields Values
______________________________________________________________________________________
Panel A: MIMIC Model
LT/MVE * * * * (excluded) * *
ST/MVE * * * * (excluded) * *
C/MVE * * * * (excluded) * *_____________________________________________________________________________________
Panel B: Titman and Wessels (1988)LT/MVE * * *
ST/MVE * * *
C/MVE_____________________________________________________________________________________
VI C l i
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VI. ConclusionA. The Results Obtained from MIMIC Model
Performed Better than those from LISREL ModelB. Growth, Uniqueness, Non-Debt Tax Shields,
Collateral Value of Assets, Profitability, Volatility,
and Classification are the Six Important
Characteristics for Determining the Capital
Structure of a FirmC. In Practice, Capital Structure Information can be
used to Estimate Financial Z-score, Cost of Capital
Estimation. In addition, Capital Structure is
Important for Performing Credit Risk Analysis.D. Capital Structure Theories can also be used to do
Macro-Finance and Economic Policy Research
E. Investment, Financing, and Dividend and Production
Policies are Important in Corporate Governance
Research.
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Appendix A.
Path Diagram
Implied in
Titmanand Wessels
(1988) Model
Path Diagram Implied in Titman and Wessels (1988) Model
GTA
CE/TA
RD/S
SE/S
NDT/TA
ITC/TA
D/TA
INT/TA
IGP/TA
QR
LnS
OI/TA
OI/S
SIGOI
IDUM
Growth
Unique-ness
Non-DebtTax
Shields
Asset
Structure
Size
Volatility
Industry
Dummy
Profitability
LT/MVE
LT/BVE
ST/BVE
ST/MVE
C/BVE
C/MVE
Appendix B:
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Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TA
OI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA)
IND
1988 1989 1990
LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE
-0.16 -0.09 -0.06 -0.20 -0.12 -0.07 -0.10 -0.08 -0.05
0.04 0.02 0.01 -0.03 -0.02 -0.01 -0.11 -0.09 -0.05
0.11 0.06 0.04 0.09 0.05 0.03 0.06 0.05 0.03
-0.74 -0.40 -0.28 -0.55 -0.34 -0.20 0.32 0.24 0.14
0.48 0.26 0.18 0.32 0.20 0.11 -0.47 -0.36 -0.20
-0.08 -0.05 -0.03 -0.01 -0.01 0.00 -0.04 -0.03 -0.02
0.11 0.06 0.04 0.18 0.11 0.06 0.14 0.11 0.06
0.02 0.01 0.01 -0.03 -0.02 -0.01 -0.07 -0.06 -0.03
-0.07 -0.04 -0.03 -0.09 -0.05 -0.03 -0.03 -0.02 -0.01
0.13 0.07 0.05 0.21 0.13 0.07 0.21 0.16 0.09
-0.30 -0.16 -0.12 -0.38 -0.24 -0.14 -0.34 -0.26 -0.15
0.17 0.09 0.07 0.29 0.18 0.10 0.23 0.18 0.10
0.00 0.00 0.00 0.04 0.02 0.01 -0.01 -0.01 -0.01
0.24 0.13 0.09 0.08 0.05 0.03 0.32 0.24 0.14
-0.02 -0.01 -0.01 0.08 0.05 0.03 -0.04 -0.03 -0.02
-0.26 -0.14 -0.10 -0.22 -0.14 -0.08 -0.24 -0.18 -0.10
-0.06 -0.03 -0.02 0.08 0.020.05 0.03 0.04 0.03
Appendix B:
Completely Standardized Total Effect of
Determinants of Capital Structure
Appendix B:
7/30/2019 Determinants of Capital Structure Choice
32/36
Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TA
OI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA)
IND
1991 1992 1993
LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE
0.02 0.01 0.01 -0.01 -0.01 -0.01 0.04 0.03 0.02
-0.08 -0.07 -0.03 -0.16 -0.11 -0.06 -0.06 -0.06 -0.03
-0.03 -0.03 -0.01 0.07 0.05 0.03 0.09 0.08 0.04
-0.12 -0.09 -0.05 -0.40 -0.29 -0.16 -0.80 -0.72 -0.34
-0.10 -0.08 -0.04 0.18 0.13 0.07 0.52 0.46 0.22
-0.12 -0.10 -0.05 -0.09 -0.06 -0.04 -0.11 -0.10 -0.05
0.06 0.05 0.03 0.05 0.03 0.02 0.11 0.10 0.05
-0.05 -0.04 -0.02 -0.07 -0.05 -0.03 -0.04 -0.04 -0.02
0.07 0.06 0.03 0.08 0.05 0.03 0.04 0.03 0.01
0.28 0.22 0.12 0.32 0.23 0.13 0.25 0.22 0.10
-0.18 -0.15 -0.08 -0.15 -0.11 -0.06 -0.06 -0.05 -0.02
0.11 0.09 0.05 0.14 0.10 0.06 0.05 0.04 0.02
0.01 0.01 0.01 -0.07 -0.05 -0.03 -0.11 -0.10 -0.05
0.33 0.26 0.14 0.13 0.09 0.05 0.12 0.11 0.05
0.07 0.07 0.07-0.01 -0.01 0.00 0.18
-0.33 -0.26 -0.14 -0.23
0.04 0.02 0.02
0.03
-0.17 -0.09 -0.06 -0.05 -0.03
0.13
0.010.01 0.01 0.03 0.030.05
Appendix B:
Completely Standardized Total Effect of
Determinants of Capital Structure
Appendix B:
7/30/2019 Determinants of Capital Structure Choice
33/36
Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TA
OI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA)
IND
1994 1995 1996
LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE
0.02 0.02 0.01 -0.12 -0.08 -0.05 0.13 0.10 0.05
-0.18 -0.12 -0.08 -0.15 -0.11 -0.06 -0.12 -0.09 -0.04
0.16 0.12 0.07 0.14 0.10 0.05 0.10 0.08 0.04
-0.63 -0.45 -0.27 -0.31 -0.21 -0.12 -0.60 -0.46 -0.22
0.41 0.29 0.18 0.18 0.12 0.07 0.39 0.30 0.14
-0.19 -0.14 -0.08 -0.08 -0.05 -0.03 -0.31 -0.24 -0.11
0.07 0.05 0.03 0.02 0.01 0.01 0.08 0.06 0.03
0.00 0.00 0.00 -0.04 -0.03 -0.02 -0.02 -0.02 -0.01
0.12 0.09 0.05 0.11 0.08 0.04 0.07 0.05 0.03
0.23 0.17 0.07 0.33 0.23 0.12 0.28 0.22 0.10
-0.10 -0.07 -0.05 -0.19 -0.13 -0.07 -0.20 -0.15 -0.07
0.04 0.03 0.02 0.11 0.08 0.04 0.21 0.16 0.08
-0.16 -0.11 -0.07 -0.02 -0.01 -0.01 -0.07 -0.06 -0.03
0.17 0.12 0.07 0.09 0.06 0.03 0.25 0.19 0.05
0.17 0.12 0.07 0.20 0.14 0.08 -0.04 -0.03 -0.01
-0.17 -0.12 -0.07 -0.19 -0.13 -0.07 -0.10 -0.08 -0.04
0.02 0.01 0.01 -0.15 0.00-0.10 -0.06 0.01 0.01
Appendix B:
Completely Standardized Total Effect of
Determinants of Capital Structure
Appendix B:
7/30/2019 Determinants of Capital Structure Choice
34/36
Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TAOI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA)
IND
1997 1998 1999
LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE
0.12 0.09 0.04 -0.01 -0.01 0.00 -0.15 -0.12 -0.04
-0.02 -0.01 -0.01 -0.08 -0.06 -0.03 -0.07 -0.05 -0.02
0.13 0.09 0.04 0.18 0.12 0.06 0.12 0.09 0.03
-0.96 -0.70 -0.30 -0.84 -0.57 -0.26 -0.66 -0.51 -0.18
0.70 0.51 0.22 0.58 0.40 0.18 0.35 0.27 0.10
-0.23 -0.17 -0.07 -0.16 -0.11 -0.05 -0.02 -0.01 0.00
0.08 0.06 0.03 0.07 0.05 0.02 0.10 0.08 0.03
-0.03 -0.02 -0.01 -0.06 -0.04 -0.02 -0.02 -0.02 -0.01
-0.01 -0.01 0.00 0.06 0.04 0.02 0.01 0.01 0.00
0.28 0.21 0.09 0.22 0.15 0.07 0.19 0.15 0.05
-0.26 -0.19 -0.08 -0.39 -0.26 -0.12 -0.34 -0.26 -0.090.26 0.19 0.08 0.35 0.24 0.11 0.31 0.23 0.08
-0.05 -0.04 -0.02 -0.08 -0.05 -0.02 -0.11 -0.08 -0.03
0.10 0.08 0.03 0.15 0.10 0.05 0.26 0.16 0.06
0.01 -0.02 -0.010.02 0.02 0.01 0.04
-0.09 -0.06 -0.03 -0.12
0.07 0.03 0.02
-0.01
-0.08 -0.04 -0.15 -0.11 -0.04
0.03
0.020.01 0 0.06 0.050.09
Appendix B:
Completely Standardized Total Effect of
Determinants of Capital Structure
Appendix B:
7/30/2019 Determinants of Capital Structure Choice
35/36
Appendix B:Completely Standardized Total Effect of
Determinants of Capital Structure
Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TA
OI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA)
IND
2000 2001 2002
LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE LT/MVE ST/MVE C/MVE
-0.03 -0.02 -0.01 0.15 0.10 0.05 -0.01 0.00 0.00
-0.03 -0.02 -0.01 -0.04 -0.03 -0.01 0.04 0.03 0.01
0.01 0.00 0.00 0.07 0.05 0.02 -0.02 -0.01 -0.01
-0.28 -0.21 -0.10 -0.68 -0.44 -0.20 -0.41 -0.24 -0.14
0.09 0.07 0.03 0.48 0.31 0.14 0.23 0.14 0.08
-0.24 -0.18 -0.08 -0.38 -0.25 -0.11 -0.24 -0.14 -0.08
0.04 0.03 0.01 0.07 0.04 0.02 0.13 0.07 0.04
-0.06 -0.04 -0.02 -0.01 -0.01 0.00 0.01 0.01 0.00
0.01 0.01 0.00 0.08 0.05 0.02 -0.04 -0.02 -0.01
0.16 0.12 0.06 0.13 0.09 0.04 0.20 0.12 0.07
-0.38 -0.29 -0.13 -0.35 -0.23 -0.10 -0.34 -0.20 -0.12
0.30 0.23 0.10 0.35 0.23 0.10 0.43 0.25 0.02
-0.08 -0.06 -0.03 -0.09 -0.06 -0.03 -0.08 -0.04 -0.03
0.12 0.09 0.04 0.09 0.06 0.03 0.22 0.13 0.07
0.10 0.08 0.04 0.15
-0.08 -0.05
0.10 0.04 -0.01 -0.01
-0.01 0.15
0.00
-0.16 -0.12 -0.06 -0.20 -0.13 -0.06 -0.13
0.000.10 0.05 -0.01 0.00-0.03 -0.02
Appendix B:
7/30/2019 Determinants of Capital Structure Choice
36/36
Determinants
of Leverage
RD/S
CE/TA
GTA
MBA
MBE
RD/TA
NDT/TA
ITC/TA
DEP/TA
IGP/TA
OI/TA
OI/S
STDGOI
CV(ROA)
CV(ROE)
CV(OITA) -0.16 -0.12 -0.05 -0.17
0.14 0.07
0.02 0.01
-0.13 -0.06
-0.08 -0.06 -0.03 0.02
0.21 0.16 0.07 0.19
0.04 -0.02
0.41 0.31
-0.07 -0.05 -0.02 -0.05
0.14 0.26
0.18 0.09
-0.20 -0.10
0.19 0.06
-0.28 -0.21 -0.09 -0.27
0.20 0.15 0.07 0.24
0.02 0.01
-0.01 -0.01
0.04 0.03 0.01 0.03
0.00 -0.02
-0.08 -0.04
0.05 0.03
-0.01 -0.01
0.20 0.15 0.07 0.07
-0.27 -0.20 -0.09 -0.11
0.25 0.12
-1.04 -0.77
0.72 0.53 0.24 0.35
-0.34 -0.64
-0.03 -0.01
0.06 0.03
-0.45 -0.22
0.12 0.09 0.04 0.09
-0.07 -0.05 -0.02 -0.04
-0.04 -0.02
LT/MVE ST/MVE
0.14 0.10 0.05 -0.06
C/MVE LT/MVE
2003 1988-2003
ST/MVE C/MVE
Appendix B:Completely Standardized Total Effect of
Determinants of Capital Structure